Covered Bonds

In the first euro benchmark trade for four weeks, Crédit Mutuel Arkéa sold its inaugural public sector Obligations Foncières on Tuesday. Syndicate officials had not expected a French issuer to reopen benchmark supply, though demand from domestic insurance buyers has been evident recently.

Bank of Ireland is poised to raise €1bn of secured funding in the private placement market, in what many bankers say is likely to have been a repo arrangement with a UK bank. The financing comes against a backdrop of improved investor perception of the Irish Republic itself, and though it is early days, it shows progress can be made when macro conditions stabilise.

As part of its 2011 Annual Index Review, Markit has announced a reduction in the minimum size of covered bond deals eligible for inclusion in its covered bond index from €1bn to €500m.

UniCredit’s German entity, HypoVereinsbank (HVB), brought its third covered bond of the year, a four year offering with a 2.125% coupon, on Tuesday. The borrower did not reach its target deal size and had to settle for a €500m print, with buyers taking smaller tickets than usual, suggesting they remain risk averse.

Deutsche Pfandbriefbank (pbb) returned to the covered bond market on Wednesday with its first benchmark since January 2010. The €500m five year trade is the second of three Pfandbriefe launched in the last two days and offered one of the highest spreads for German paper this year.

Austria’s Raiffeisen-Landesbank Steiermark brought its debut covered bond on Tuesday, choosing to test investor appetite for a new name with a three year €500m no grow deal.

Liquidity means different things to different people. This is problematic given its definition is likely to be pivotal to what is allowed into, or excluded from, the Liquidity Coverage Ratio. At the moment covered bonds, non-financial corporate bonds, SSAs and sovereign debt are all in.

Sentiment has clearly improved with two deals and one tap announced in the primary market, while bids have gingerly returned to the secondary market. However, investors, traders and syndicate bankers say the tone is skittish, leaving most feeling guarded.

German, French and UK issuers launched trades on Tuesday as indices tightened and stock markets rose on hopes that a solution to the eurozone debt crisis had been outlined over the weekend.

Moody’s has welcomed the Australian Banking Amendment (Covered Bonds) Bill 2011 as credit positive for investors in the country’s covered bonds, and for the nation’s banks.

There has been a slight improvement in market sentiment on Monday morning, with several issuers reporting positive feedback from roadshows. Should an issuer step forward to reopen the market, however, syndicate bankers said it was unlikely to be one of those publically mandated.

Liquidity is still poor in the covered bond market but latest headlines suggest only positive news. The ECB is said to be considering restarting its covered bond purchase programme, while French press reports suggest a three way merger of Dexia Group’s troubled Obligations Foncières issuing subsidiary — DexMA with La Banque Postale and Caisse des Dépots.